Nervous time for investors

There is concern growing amongst financial planners and fund managers that investors will start panicking over the poor (in many cases negative) returns currently recorded by international share markets.

The situation will be compounded over the next few weeks when investors start getting distribution statements and portfolio valuation reports that will show how much money the markets have wiped off their investments.

"The March returns will be the worst year-on-year numbers investors have seen for many years," IPAC Securities general manager David van Schaardenburg says.

This has promoted a number of managers to prepare communications that reassure investors about the situation.

Guardian Trust Funds Management managing director Anthony Quirk says in times like these advisers are more focused on client retention, as opposed to generating new sales.

"It's the time when advisers earn their money."

He says wholesale investors are more sanguine about the markets as they know they are in it for the long term.

"Retail investors do get a bit more flummoxed and take money out in times like this," he says.

Research done overseas by HSBC shows that in three previous market downturns (1987, 1990 and 1998), the markets' trough came just a month after the heaviest mutual fund outflows.

Recently the US mutual fund market experienced it first monthly outflow since September 1998 and the largest, as a percentage of market capitalisation, since October 1987.

Van Schaardenburg says there is no equivalent research in New Zealand, however he would expect similar trends to appear.

"(Market downturns) are a classic time when momentum investors get out," he says. Meanwhile the contrarian investor will be putting money in.

Greg Wilson, who used to be with WestpacTrust but is now the associate director at newly established Australian-based firm Endeavour Funds Management, says that when markets are rising everyone is happy, but when they turn investors switch to a mentality of capital protection.

He says often their risk profile changes and they want to take on less risk.

BT Funds Management chief executive Craig Stobo says it's times like this when investors have to revisit their risk tolerance and review their exposure to equities and investment time frame.

"It's a hard time for them (now) if they have a short term view," he says.

Stobo says there will be some "nervous nellies" out there and market downturns really test investors' mettle about sticking to their long term strategies.

He says the present situation is compounded as alternative investments such as cash and property aren't looking too flash either. Deposit rates continue to fall as central banks around the world cut interest rates, and property is still out of favour.

BT also warns about the false perception that New Zealand is immune from the world economic slowdown.

"People are being overly optimistic if they think that exports can hold up in the face of a global slowdown."

He says that investors should seriously think about buying into, or topping up their international equities holdings as the downside risks are diminishing.